Indian Bond Yields Hold Near Six-Week High on Currency Concern

Indian bond yields hovered near a six-week high on speculation a weaker currency will limit the central bank’s room to cut interest rates.

The rupee fell to within 0.2 percent of a record low today as investors favored the dollar after U.S. data bolstered the outlook for the world’s largest economy. Finance Minister Palaniappan Chidambaram plans to raise a record 6.3 trillion rupees ($105 billion) from debt sales in the fiscal year that began April 1, according to budget estimates. Only a “durable receding of inflation” will allow further policy easing, the Reserve Bank of India said in a June 17 statement while keeping the repurchase rate unchanged at 7.25 percent after cutting it three times this year.

“The rupee continues to be an overhang for the bond markets,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai. “Though levels are pretty attractive, large debt supplies ahead seem to be deterring investors.”

The yield on 8.15 percent notes due June 2022 fell one basis point, or 0.01 percentage point, to 7.67 percent as of 10.29 a.m. in Mumbai, according to the central bank’s trading system. The yield climbed to 7.70 percent on June 24, a level last reached May 8, and has risen 23 basis points this month.

Almost a week after the Federal Reserve said an improving economy could spur reductions in stimulus, data in the U.S. showed orders for durable goods rose in May while house prices, new-home sales and consumer confidence reports beat economists’ estimates. The rupee has fallen 5.6 percent this month, the worst performer among the 11 most-traded Asian currencies tracked by Bloomberg.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, slid one basis point to 7.43 percent, data compiled by Bloomberg show.

-- With assistance from V. Ramakrishnan in Mumbai. Editors: Robin Ganguly, Andrew Janes

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